Impacts of services trade barriers: a study of the insurance industry

Abstract

Barriers, especially non‐tariff barriers (NTBs), have been shown to have an important impact upon international trade in services. Foreign direct investment and market entry strategy theory do not adequately address the importance of NTBs in the decision‐making process. Previous studies indicate that service firms need to establish local presence to be successful in a foreign market. Where firms are unable to enter a market because it is blocked by trade barriers, some researchers suggest managers engage in specific entry strategies or strategic actions to overcome barriers. This study, based on in‐depth interviews with insurance executives, shows that trade barriers are one of several factors managers evaluate when deciding whether to enter a market. However, barriers can become a critical factor if they create prohibitive costs or difficulties. Based on the findings, this study proposes a new model of market entry decision making which hypothesizes that barriers can become a go/no‐go decision factor.